International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Sunday, June 17, 2018

More than 2 million ITINs to expire this year; Renew soon to avoid refund delays

With more than 2 million Individual Taxpayer Identification Numbers (ITINs) set to expire at the end of 2018, the Internal Revenue Service today urged affected taxpayers to submit their renewal applications soon to beat the rush and avoid refund delays next year.

In the third year of the renewal program, the IRS has increased staffing to handle the anticipated influx of W-7 applications for renewal. This third wave of expiring ITINs is expected to affect as many as 2.7 million taxpayers. To help taxpayers, the renewal process for 2019 is beginning earlier than last year.

“Even though the April tax deadline has passed, the IRS encourages people affected by these ITIN changes to take steps as soon as possible to prepare for next year’s tax returns,” said Acting IRS Commissioner David Kautter. “Acting now to renew ITIN numbers will help taxpayers avoid delays that could affect their tax filing and refunds in 2019. The IRS appreciates the help from partner groups across the nation sharing this information with those with expiring ITIN numbers.”

Under the Protecting Americans from Tax Hikes (PATH) Act, ITINs that have not been used on a federal tax return at least once in the last three consecutive years will expire Dec. 31, 2018. In addition, ITINs with middle digits 73, 74, 75, 76, 77, 81 or 82 will also expire at the end of the year. These affected taxpayers who expect to file a tax return in 2019 must submit a renewal application as soon as possible.

ITINs are used by people who have tax filing or payment obligations under U.S. law but who are not eligible for a Social Security number. ITIN holders who have questions should visit the ITIN information page on IRS.gov and take a few minutes to understand the guidelines.

Once again, the IRS is launching a nationwide education effort to share information with ITIN holders. To help taxpayers, the IRS offers a variety of informational materials, including flyers and fact sheets, available in several languages on IRS.gov.

The IRS will continue to work with partner groups and others in the ITIN community to share information widely about these important changes.   

Who should renew an ITIN

  • Taxpayers whose ITIN is expiring and who need to file a tax return in 2019 must submit a renewal application. Others do not need to take any action. ITINs with the middle digits 73, 74, 75, 76, 77, 81 or 82 (For example: 9NN-73-NNNN) need to be renewed even if the taxpayer has used it in the last three years. The IRS will begin sending the CP-48 Notice, You must renew your Individual Taxpayer Identification Number (ITIN) to file your U.S. tax return, in early summer to affected taxpayers. The notice explains the steps to take to renew the ITIN if it will be included on a U.S. tax return filed in 2019. Taxpayers who receive the notice after taking action to renew their ITIN do not need to take further action unless another family member is affected.
  • ITINs with middle digits of 70, 71, 72, 78, 79 or 80 have previously expired. Taxpayers with these ITINs can still renew at any time.
  • Spouses or dependents residing inside the United States should renew their ITINs. However, spouses and dependents residing outside the United States do not need to renew their ITINs unless they anticipate being claimed for a tax benefit (for example, after they move to the United States) or if they file their own tax return. That’s because the deduction for personal exemptions is suspended for tax years 2018 through 2025 by the Tax Cuts and Jobs Act. Consequently, spouses or dependents outside the United States who would have been claimed for this personal exemption benefit and no other benefit do not need to renew their ITINs this year.

Family option remains available

Taxpayers with an ITIN that has middle digits 73, 74, 75, 76, 77, 81 or 82, as well as all previously expired ITINs, have the option to renew ITINs for their entire family at the same time. Those who have received a renewal letter from the IRS can choose to renew the family’s ITINs together, even if family members have an ITIN with middle digits that have not been identified for expiration. Family members include the tax filer, spouse and any dependents claimed on the tax return.

How to renew an ITIN

To renew an ITIN, a taxpayer must complete a Form W-7 and submit all required documentation. Taxpayers submitting a Form W-7 to renew their ITIN are not required to attach a federal tax return. However, taxpayers must still note a reason for needing an ITIN on the Form W-7. See the Form W-7 instructions for detailed information.

There are three ways to submit the W-7 application package. Taxpayers can:

  • Mail the Form W-7, along with original identification documents or copies certified by the agency that issued them, to the IRS address listed on the Form W-7 instructions. The IRS will review the identification documents and return them within 60 days.
  • Work with Certified Acceptance Agents (CAAs) authorized by the IRS to help taxpayers apply for an ITIN. CAAs can authenticate all identification documents for primary and secondary taxpayers, verify that an ITIN application is correct before submitting it to the IRS for processing and authenticate the passports and birth certificates for dependents. This saves taxpayers from mailing original documents to the IRS.
  • In advance, call and make an appointment at a designated IRS Taxpayer Assistance Center to have each applicant’s identity authenticated in person instead of mailing original identification documents to the IRS. Applicants should bring a completed Form W-7 along with all required identification documents. See the TAC ITIN authentication page for more details.

Avoid common errors now and prevent delays next year

Federal tax returns that are submitted in 2019 with an expired ITIN will be processed. However, certain tax credits and any exemptions will be disallowed. Taxpayers will receive a notice in the mail advising them of the change to their tax return and their need to renew their ITIN. Once the ITIN is renewed, applicable credits and exemptions will be restored and any refunds will be issued.

Additionally, several common errors can slow down and hold some ITIN renewal applications. These mistakes generally center on missing information or insufficient supporting documentation, such as name changes. The IRS urges any applicant to check over their form carefully before sending it to the IRS.

As a reminder, the IRS no longer accepts passports that do not have a date of entry into the U.S. as a stand-alone identification document for dependents from a country other than Canada or Mexico, or dependents of U.S. military personnel overseas. The dependent’s passport must have a date of entry stamp, otherwise the following additional documents to prove U.S. residency are required:

  • U.S. medical records for dependents under age 6,
  • U.S. school records for dependents under age 18, and
  • U.S. school records (if a student), rental statements, bank statements or utility bills listing the applicant’s name and U.S. address, if over age 18.

IRS continues to encourage more applicants for the Acceptance Agent Program to expand ITIN services

To increase the availability of ITIN services nationwide, particularly in communities with high ITIN usage, the IRS is actively recruiting Certified Acceptance Agents and accepting applications year-round. Interested individuals are encouraged to review all CAA program changes and requirements and submit an application to become a Certified Acceptance Agent.

June 17, 2018 in Tax Compliance | Permalink | Comments (0)

Thursday, June 14, 2018

13,162 victims paid IRS impersonators more than $65.6 million

TIGTA reports that the largest and most pervasive IRS impersonation scam in the history of this agency continues to rank near the top of the IRS’s “Dirty Dozen” tax scams.

As of March 31, 2018, more than 13,162 victims have reported that they have paid IRS impersonators a total of more than $65.6 million. As of March 31, 2018, because of TIGTA’s relentless commitment to protecting taxpayers, a total of 111 individuals have been charged in Federal court for their roles in this nationwide scam.

See pages 33 - 40 of Download TIGTA's semiannual_mar2018

 

June 14, 2018 in Tax Compliance | Permalink | Comments (0)

Saturday, June 2, 2018

Invest in Hedgefunds through Private Placement Life Insurance to Avoid Paying Taxes Forever, Blackstone Tells UHNW Clients

read the Private Wealth Magazine article here:  With the increased popularity, life insurers have slashed the fees they charge for wealthy clients. A typical cost is now as low as 0.7 percent per year, cut by more than half since the early 2000s, Pauloski said.

The structures effectively lock up your assets, an inconvenient option if you need ready access to your fortune. But there’s still a way to tap the money while alive. You can take loans against the investment’s cash value, tax-free.

Read Bloomberg article here.

June 2, 2018 in Tax Compliance | Permalink | Comments (0)

Friday, May 25, 2018

Treasury, IRS To Issue Proposed Rule on State and Local Tax Deductions

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) will issue proposed regulations in the near future addressing legislation adopted or being considered by state legislatures that allow taxpayers to receive a credit against their state and local taxes for contributions to certain organizations or funds designated by the state. In addition to cutting income tax rates, expanding the child tax credit, and nearly doubling the standard deduction, the Tax Cuts and Jobs Act limited the amount of state and local taxes an individual can deduct in a calendar year to $10,000.    Download IRS prop state tax deductions trick by states

In the notice issued today, Treasury and the IRS informed taxpayers that proposed regulations will be issued addressing the deduction of contributions to state and local governments, and other state-specified funds, for federal tax purposes. The proposed regulations will make clear that the Internal Revenue Code, not the label used by states, governs the federal income tax treatment of such transfers. The proposed regulations will also assist taxpayers in understanding the relationship between the federal charitable contribution deduction and the new statutory limitation on the deduction of state and local income taxes.

May 25, 2018 in Tax Compliance | Permalink | Comments (0)

Thursday, May 24, 2018

IRS' Confiscatory Percentage Based FBAR Penalties Ruled Illegal By Court

Jack Townshend analyzes the following case

In United States v. Colliot (W.D. Texas No. AU-16-CA-01281-SS), a case brought by the U.S. to obtain judgment on an FBAR willful penalty, the Court granted Colliot's motion for summary judgment, holding that the IRS cannot assess a willful penalty in excess of $100,000 despite the statute allowing a penalty assessment of the higher of $100,000 or 50% of the maximum amount in the unreported foreign account(s).  The order granting summary judgment is here.  This is a major holding which will surely follow, could dramatically affect the landscape for cases in the pipeline until the IRS acts to change the regulations landscape on which the decision was based.

Read his analysis at Federal Tax Crimes blog.

May 24, 2018 in Tax Compliance | Permalink | Comments (0)

Wednesday, May 16, 2018

2017 IRS Research Bulletin

2017 IRS Research Bulletin

The 2017 IRS Research Bulletin (Publication 1500) features selected papers from the IRS-Tax Policy Center (TPC) Research Conference held at the Urban Institute in Washington, DC, on June 21, 2017. Conference presenters and attendees included researchers from many areas of the IRS, officials from other government agencies, and academic and private sector experts on tax policy, tax administration, and tax compliance.


2017 IRS Research Bulletin


Foreword

  1. Identifying Corporation Tax Avoidance
     
  2. Realizing the Potential of Tax Enforcement
     
  3. The Role of Incentives in Individual Compliance
     
  4. Creative Use of Nontax Data Sources
     

Here are PDF copies of the slides from the conference.

Session 1    Session 2      Session 3      Session 4

May 16, 2018 in Tax Compliance | Permalink | Comments (0)

Sunday, May 6, 2018

British Lawyer Found Guilty After Trial For His Participation In Multimillion-Dollar Tax Fraud Scheme Involving Swiss Bank Accounts

UK Lawyer Michael Little was found guilty of charges that he participated in an 11-year tax fraud scheme in which he advised and helped an American family to defraud the Internal Revenue Service by hiding approximately $14 million in overseas Swiss bank accounts and by other means, failed to file his own personal tax returns, and assisted in the filing of false tax returns.  The three-week-long trial took place before U.S. District Judge P. Kevin Castel, who is scheduled to sentence LITTLE on September 6, 2018.

U.S. Attorney Geoffrey S. Berman stated:  “Michael Little assisted an American family in evading taxes on $14 million in undeclared offshore inheritance money.  Over the course of a decade, he helped the family illegally funnel millions of dollars of that inheritance from Swiss bank accounts into the United States, in order to avoid IRS detection.  Especially at this time of year, this case serves as a reminder that failure to pay one’s fair share of taxes can result in a felony conviction.”           

According to the allegations contained in the Complaint, Indictment, and the evidence presented in Court during the trial:

LITTLE, a British attorney who resides in England and is licensed to practice law in New York, was a business associate of the patriarch of the Seggerman family, an American family residing in the United States.  In August 2001, after the patriarch died, LITTLE and a lawyer from Switzerland (the “Swiss Lawyer”) met with his widow and adult children at a hotel in Manhattan, and advised them that the patriarch had left them approximately $14 million in overseas accounts that had never been declared to U.S. taxing authorities.  LITTLE and the Swiss lawyer also advised the various family members on steps they could take to continue hiding these assets from the IRS.  In particular, LITTLE discussed with the family members various methods by which they could bring the money into the United States from the Swiss accounts while evading detection by the IRS.  Among other means, he advised family members that they could bring money back to the United States in small increments, or “little chunks,” through means such as traveler’s checks, or by disguising money transfers to the United States as being related to the sales of artwork or jewelry.  Various members of the Seggerman family agreed to work together with LITTLE and the Swiss Lawyer to repatriate the offshore funds. 

In accordance with the plan he orchestrated, LITTLE assisted in opening an undeclared Swiss account for the purpose of holding and hiding the widow’s inheritance funds.  LITTLE also enlisted the assistance of a New Jersey accountant to prepare false and fraudulent tax returns and to keep falsified accounting records for a corporate entity in the United States, controlled by the widow and used to receive inheritance funds repatriated from the Swiss account.  Between 2001 and 2010, LITTLE caused over $3 million to be sent surreptitiously from the undeclared Swiss account to the United States corporate entity for the widow’s benefit.  LITTLE also worked with the New Jersey accountant to establish a sham mortgage that allowed another Seggerman family member to access approximately $600,000 of undeclared inheritance funds held in a Swiss account.

In or about 2010, LITTLE became aware of an IRS criminal investigation into the scheme.  In an attempt to cover up his involvement, LITTLE communicated with a tax attorney and the accounting firm that had prepared the widow’s individual tax returns.  LITTLE provided false information to the tax lawyer and the accounting firm about the nature of the transfers from the Swiss account to the United States, claiming that the transfers represented “pure gifts” from a non-U.S. person who had “absolutely no relationship” to the widow.  Based on LITTLE’s misrepresentations, the accounting firm filed inaccurate tax returns for the years 2001 through 2010, which categorized the transfers of over $3 million to the widow as foreign gifts.

LITTLE has been a lawful permanent resident of the United States, also known as a green card holder, since 1972.  As a lawful permanent resident, he had an obligation to file annual tax returns reporting his worldwide income to the IRS.  In or about 2005, LITTLE was admitted to the New York State Bar as an attorney.  Between 2005 and at least late 2008, LITTLE resided full time in New York City, where he worked and earned hundreds of thousands of dollars of income as an attorney representing clients.  During the period of 2001 to 2010, LITTLE also earned other legal fees, along with hundreds of thousands of dollars more in fees for his work on behalf of the Seggerman family.  LITTLE failed to file any tax returns with the IRS between 2005 and 2010.  He further failed to file, for years 2007 through 2010, annual Reports of Foreign Bank and Financial Accounts (“FBARs”) in connection with foreign bank accounts he controlled, which held in excess of $10,000 each year.

*                *                *

LITTLE, 67, who resides in Hampshire, England, was convicted of obstructing and impeding the due administration of the internal revenue laws, failing to file personal income tax returns from 2005 to 2010, willfully failing to file reports of foreign bank and financial accounts, conspiracy to defraud the United States, and aiding and assisting the preparation of false tax returns.  The failure to file personal income tax returns charges each carry a maximum sentence of one year in prison, the obstruction charge and the aiding and assisting the preparation of false tax returns charges each carry a maximum sentence of three years in prison, and the willful failure to file reports of foreign bank and financial accounts and conspiracy charges each carry a maximum sentence of five years in prison.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Berman praised the outstanding investigative work of the IRS.  Mr. Berman also thanked the U.S. Department of Homeland Security, Office of Fraud Detection and National Security, United States Citizenship and Immigration Services, New York State Department of Taxation and Finance, and FinCEN for their substantial assistance in the investigation and trial.

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorneys Christopher DiMase, Dina McLeod, and Andrew Dember are in charge of the prosecution.

May 6, 2018 in Tax Compliance | Permalink | Comments (0)

Tuesday, April 24, 2018

OECD addresses the misuse of residence/citizenship by investment schemes

Revelations from the "Daphne Project" on the Maltese residence and citizenship by investment schemes underline the crucial importance of the OECD's work to ensure that the integrity of the OECD/G20 Common Reporting Standard (CRS) is preserved and that any circumvention is detected and addressed.   Download Consultation-document-preventing-abuse-of-residence-by-investment-schemes

Over the last months, the OECD has been taking a set of actions to ensure that all taxpayers maintaining financial assets abroad are effectively reported under the CRS, including by:

  • issuing new model disclosure rules that require lawyers, accountants, financial advisors, banks and other service providers to inform tax authorities of any schemes they put in place for their clients to avoid reporting under the CRS. The adoption of such model mandatory disclosure rules will have a deterrent effect on the promotion of CBI/RBI schemes for circumventing the CRS and provide tax authorities with intelligence on the misuse of such schemes as CRS avoidance arrangements. The EU Member States have already agreed  to implement these rules as part of a wider directive on mandatory disclosures;
  • reaching out to individual jurisdictions, including Malta, to make them aware of the risk of abuse of their CBI/RBI schemes and offer assistance in adopting mitigating measures; and
  • establishing a list of high risk schemes in order to further raise awareness amongst stakeholders of the potential of such schemes to undermine the CRS due diligence and reporting requirements.

Download Public-input-received-misuse-of-residence-by-investment-schemes-to-circumvent-the-common-reporting-standard

In addition, on 19 February 2018, the OECD issued a consultation document, outlining potential situations where the misuse of CBI/RBI schemes poses a high risk to accurate CRS reporting and seeking public input both to obtain evidence on the misuse of CBI/RBI schemes and on effective ways for preventing such abuse.

The substantial amount of input received in response to the consultation further underlines the importance of the OECD's actions in this field. It also contains a wide range of proposals for further addressing the misuse of RBI/CBI schemes, including: 1) comprehensive due diligence checks to be carried out as part of the RBI/CBI application process, 2) the spontaneous exchange of information about individuals that have obtained residence/citizenship through such a CBI/RBI scheme with their original jurisdiction(s) of tax residence; and 3) strengthened CRS due diligence procedures on financial institutions with respect to high risk accounts.

The OECD will take the next step in addressing the issue, when experts from OECD and G20 countries meet in Paris this May to further elaborate actions to be taken to effectively address the misuse of CBI/RBI schemes.

April 24, 2018 in OECD, Tax Compliance | Permalink | Comments (0)

Friday, April 20, 2018

Tax Cuts and Jobs Act: Assessment of Implementation Planning Efforts

The Treasury Inspector General for Tax Administration (TIGTA) released its audit report of the Internal Revenue Service’s (IRS) efforts in implementing the Tax Cuts and Jobs Act of 2017.

The Act makes significant changes to the tax code affecting individuals, businesses, and tax-exempt organizations. It also contains 119 new provisions that are administered by the IRS and affect both domestic and international taxes. The Joint Committee on Taxation estimates a net reduction in tax of almost $1.5 trillion over Fiscal Years 2018 through 2027 under this law.

TIGTA’s new report concludes that the IRS’s Legislative Affairs function monitored the pending legislation to identify provisions that would affect the IRS and informed the various IRS operating divisions so they could begin to assess how to handle the implementation. Once the law was enacted, the IRS immediately began the task of implementing the new provisions. In addition, the IRS established a multifaceted oversight structure to coordinate implementation activities among the various IRS operating divisions. This included creating an Executive Steering Committee led by the Acting IRS Commissioner, the Tax Reform Implementation Office, and the Tax Reform Implementation Council. The IRS worked with the Department of the Treasury and estimated that implementation of the Act would cost approximately $397 million. This includes hiring an estimated 1,734 full time equivalent positions to implement tax reform over the next two calendar years.

The IRS also took adequate steps to develop the new tax withholding tables. The Tax Cuts and Jobs Act included a provision that made significant changes to income tax rates, income tax deductions and credits, and Federal income tax withholding. The IRS, in conjunction with the Department of the Treasury, designed the Tax Year 2018 withholding table to work with an employee’s existing Form W-4. The IRS also updated its online withholding calculator to work with the revised tax tables to provide taxpayers with the ability to estimate their tax liability and withholding under the Tax Cuts and Jobs Act. The calculator also provides taxpayers with a suggestion as to the number of withholding allowances they should claim for the remainder of Tax Year 2018.

This audit report was prepared only for the purpose of providing information; therefore, no recommendations were made in this report.

Read the report.

April 20, 2018 in Tax Compliance | Permalink | Comments (0)

Saturday, April 7, 2018

IRS releases Data Book for 2017 showing range of tax data, including audits, collection actions and taxpayer service

The Internal Revenue Service today released the 2017 IRS Data Book, a snapshot of agency activities for the fiscal year.

The 2017 IRS Data Book describes activities conducted by the IRS from Oct. 1, 2016, to Sept. 30, 2017, and includes information about tax returns, refunds, examinations and appeals, illustrated with charts showing changes in IRS enforcement activities, taxpayer assistance levels, tax-exempt activities, legal support workload, and IRS budget and workforce levels when compared to fiscal year 2016. New to this edition is a section on taxpayer attitudes from a long-running opinion survey.

Revenue Collection, Returns Processing, Taxpayer Service, and Enforcement Actions 
During fiscal year 2017, the IRS collected more than $3.4 trillion, processed more than 245 million tax returns and other forms, and issued over 121 million individual income tax refunds totaling almost $437 billion.

The IRS provided taxpayer assistance through almost a half billion visits to IRS.gov and helped more than 53 million taxpayers through different service channels, such as correspondence, toll-free telephone helplines or at walk-in sites. There were also more than 278 million inquiries to the “Where’s My Refund” application. 

Compared to the prior year, there were fewer audits and collection actions during fiscal year 2017. The IRS audited almost 934,000 individual income tax returns during the fiscal year, the lowest number of audits since 2003. The chance of being audited fell to 0.6 percent, the lowest coverage rate since 2002.

In FY 2017, the IRS also continued a years-long effort to fight tax-related identity theft. The IRS Criminal Investigation Division completed 524 criminal investigations of tax-related identity thefts.

Several collection activities fell during the fiscal year. IRS levies were down 32 percent compared to the prior year, and the agency filed about 5 percent fewer liens than in fiscal year 2016.

The IRS Data Book’s online format makes navigating data on taxpayer assistance, enforcement, and IRS operations easier. The publication contains depictions of key areas and quick links to the underlying data.

The Comprehensive Taxpayer Attitude Survey (CTAS) 
In 2017, more than 2,000 taxpayers provided the IRS feedback via cell phone, landline or online surveys. Their opinions will help inform IRS efforts to improve taxpayer service. Nearly all taxpayers (about 95 percent) said it is their civic duty to pay their fair share of taxes. Most taxpayers (79 percent of respondents) said that they were satisfied with their personal interactions with the IRS.

An electronic version of the 2017 IRS Data Book can be found on the Tax Stats page of IRS.gov.

April 7, 2018 in Tax Compliance | Permalink | Comments (0)

Monday, April 2, 2018

IRS issues guidance on business interest expense limitations

The Treasury Department and the Internal Revenue Service (IRS) today issued Notice 2018-28, which provides guidance for computing the business interest expense limitation under recent tax legislation enacted on Dec. 22, 2017.   Download Bus interest limitation

In general, newly amended section 163(j) of the Internal Revenue Code imposes a limitation on deductions for business interest incurred by certain large businesses. For most large businesses, business interest expense is limited to any business interest income plus 30 percent of the business’ adjusted taxable income.

Today’s notice describes aspects of the regulations that the Treasury Department and the IRS intend to issue, including rules addressing the calculation of the business interest expense limitation at the level of a consolidated group of corporations and other rules to clarify certain aspects of the law as it applies to corporations. The notice clarifies the treatment of interest disallowed and carried forward under section 163(j) prior to enactment of the recent tax legislation. Finally, the notice makes it clear that partners in partnerships and S corporation shareholders cannot interpret newly amended section 163(j) to inappropriately “double count” the business interest income of a partnership or S corporation.

Today’s notice requests comments on the rules described in the notice and also requests comments on what additional guidance should be issued to assist taxpayers in computing the business interest expense limitation under section 163(j). The Treasury Department and the IRS expect to issue additional guidance in the future.

Today’s notice, Notice 2018-28, will be published in IRB 2018-16 on April 16, 2018.

April 2, 2018 in Tax Compliance | Permalink | Comments (0)

IRS Issues Additional Guidance on Transition Tax on Foreign Earnings

The Treasury Department and the Internal Revenue Service provided additional guidance (Notice 2018-26) for computing the “transition tax” on the untaxed foreign earnings of foreign subsidiaries of U.S. companies under the Tax Cuts and Jobs Act enacted on Dec. 22, 2017. The Treasury Department and the IRS provided prior guidance on the transition tax in Notice 2018-07, Notice 2018-13, and Revenue Procedure 2018-17.

Today’s notice describes regulations that the Treasury Department and the IRS intend to issue, including rules intended to prevent the avoidance of section 965, rules and procedures relating to certain special elections under section 965, and guidance on the reporting and payment of the transition tax. The notice also provides relief to taxpayers from certain estimated tax requirements and penalties arising from the enactment of the transition tax and the change to existing stock attribution rules in the Tax Cuts and Jobs Act.

Additionally, Treasury and the IRS request comments on the rules described in the notice and requests comments on what additional guidance should be issued to assist taxpayers in computing the transition tax. The Treasury Department and the IRS expect to issue additional guidance in the future.

Download April notice on transition tax

April 2, 2018 in Tax Compliance | Permalink | Comments (0)

IRS Issues Guidance on Withholding on the Transfer of Partnership Interests by Foreign Persons

IR-2018-81, April 2, 2018

WASHINGTON ―The Treasury Department and the Internal Revenue Service issued guidance regarding the withholding on the transfer of non-publicly traded partnership interests under the recently enacted Tax Cuts and Jobs Act.

In general, the new law treats a foreign taxpayer’s gain or loss on the sale or exchange of a partnership interest as effectively connected with the conduct of a trade or business in the United States to the extent that gain or loss would be treated as effectively connected with the conduct of a trade or business in the United States if the partnership sold all of its assets.

In this circumstance, the new law also imposes a withholding tax on the disposition of a partnership interest by a foreign taxpayer.

Notice 2018-29 announces that the Treasury Department and the IRS intend to issue regulations, including rules and procedures relating to qualifying for exemptions from withholding or reductions in the amount of withholding under this section of the law. The notice also includes interim guidance designed to allow for the effective and orderly implementation of this section. In addition, the notice suspends secondary partnership level withholding requirements.

The guidance in this notice does not affect the tax liability imposed as a result of the new law. This notice does not affect the suspension of the application of withholding in the case of a disposition of certain publicly traded partnership interests as announced in Notice 2018-08, 2018-7 I.R.B. 352.

Today’s notice requests comments on the rules described in the notice and also requests comments on what additional guidance should be issued to assist taxpayers in applying section these sections of law. The Treasury Department and the IRS expect to issue additional guidance in the future.

Today’s notice, Notice 2018-29, will be published in IRB 2018-16 on April 16, 2018.    Download Withholding on partnership transfers offshore

April 2, 2018 in Tax Compliance | Permalink | Comments (1)

Monday, March 26, 2018

IRS reminds taxpayers to report virtual currency transactions

The Internal Revenue Service today reminded taxpayers that income from virtual currency transactions is reportable on their income tax returns.

Virtual currency transactions are taxable by law just like transactions in any other property. The IRS has issued guidance in IRS Notice 2014-21 for use by taxpayers and their return preparers that addresses transactions in virtual currency, also known as digital currency.

Taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest.

In more extreme situations, taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions. Criminal charges could include tax evasion and filing a false tax return. Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.

Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country’s traditional currency. There are currently more than 1,500 known virtual currencies. Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, some taxpayers may be tempted to hide taxable income from the IRS.

Notice 2014-21 provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:

  • A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.
  • Payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply.  Normally, payers must issue Form 1099-MISC.
  • Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2 and are subject to federal income tax withholding and payroll taxes.
  • Certain third parties who settle payments made in virtual currency on behalf of merchants that accept virtual currency from their customers are required to report payments to those merchants on Form 1099-K, Payment Card and Third Party Network Transactions.
  • The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.

March 26, 2018 in Tax Compliance | Permalink | Comments (0)

Thursday, March 15, 2018

IRS provides additional details on section 965, transition tax; Deadlines approach for some 2017 filers

The Internal Revenue Service today provided additional information to help taxpayers meet their filing and payment requirements for the section 965 transition tax.

The Tax Cuts and Jobs Act requires various taxpayers that have untaxed foreign earnings and profits to pay a tax as if those earnings and profits had been repatriated to the‎ United States. The new law outlines details on the tax rates, and certain taxpayers may elect to pay the transition tax over eight years.

As the March 15 and April 17 deadlines approach for various filers, the IRS released information today in a question and answer format. The Frequently Asked Questions address basic information ‎for taxpayers affected by section 965. This includes how to report section 965 income and how to report and pay the associated tax liability. The information on IRS.gov also provides details on several elections under section 965 that taxpayers can make.

The Treasury Department and the IRS previously released three pieces of guidance related to section 965 issues including Notices 2018-07 and 2018-13 and Revenue Procedure 2018-17‎. The IRS will provide additional guidance and other information on IRS.gov in the weeks ahead.

March 15, 2018 in BEPS, Tax Compliance | Permalink | Comments (0)

Sunday, March 11, 2018

Removal of countries from EU tax haven blacklist

MEPs will review plans to remove eight countries from an EU tax haven blacklist, in a debate on Wednesday evening.

MEPs will hear from the EU Commission and Council on their decision to remove several countries -- including Panama and Tunisia -- from an EU blacklist of tax havens, little more than a month after they were first listed. 

 You can watch the plenary debate via EP Live, and EbS+.

Background

In January, the Commission announced that it would move eight of the original 17 countriesfrom its black list to a “grey list”, drawing further criticism from those who are already sceptical about the lack of sanctions or other financial penalties against countries on the list.  

March 11, 2018 in Tax Compliance | Permalink | Comments (0)

Tuesday, March 6, 2018

IRS Issues Guidance To Stop Carried Interests Loophole With S Corps

Notice 2018-18

Section 1061(a) provides in general that if one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of (1) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year, over (2) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of section 1222 by substituting “3 years” for “1 year,” shall be treated as short-term capital gain, notwithstanding section 83 or any election in effect under section 83(b).

Section 1061(c)(1) generally defines the term “applicable partnership interest” as meaning any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business. 

Section 1061(c)(4)(A) provides that the term “applicable partnership interest” shall not include any interest in a partnership directly or indirectly held by a corporation. Section 1361(a)(1) provides in general that the term “S corporation” means, with respect to any taxable year, a small business corporation for which an election under § 1362(a) is in effect for such year.

Section 1361(a)(2) provides in general that the term “C corporation” means, with respect to any taxable year, a corporation which is not an S corporation for such year. Section 1361(b)(1) defines a “small business corporation” as a domestic corporation which is not an ineligible corporation and which does not -- (A) have more than 100 shareholders, (B) have as a shareholder a person (other than an estate, a trust described in section 1361(c)(2), or an organization described in section 1361(c)(6)) who is not an individual, (C) have a nonresident alien as a shareholder, and (D) have more than 1 class of stock.

THE EXCEPTION IN SECTION 1061(c)(4)(A) DOES NOT APPLY TO PARTNERSHIP INTERESTS HELD BY S CORPORATIONS.

The regulations will provide that the term “corporation” in section 1061(c)(4)(A) does not include an S corporation.  Section 1061 is effective for taxable years beginning after December 31, 2017.  The Treasury Department and the IRS intend to provide that regulations implementing section 3 of this notice will be effective for taxable years beginning after December 31, 2017.

 

March 6, 2018 in Tax Compliance | Permalink | Comments (0)

Wednesday, February 14, 2018

IRS to Revoke U.S. Passports for Tax Debts Starting February 2018

Caplin & Drysdale reports:  As detailed in our prior alert (here), Congress enacted Fixing America’s Surface Transportation Act (the “FAST Act”) in December 2015 and authorized the Internal Revenue Service (“IRS”) to notify the Department of State (“State Department”) when any individual has a “seriously delinquent tax debt.” After receiving notice, the Secretary of State may deny that person the right to use, obtain, or renew a U.S. passport. Though the law was enacted more than two years ago, the IRS has not yet implemented it. That will soon change, as IRS deputy chief counsel (Operations), Drita Tonuzi, indicated during the American Bar Association midyear meeting that the IRS will begin sending certifications of seriously delinquent tax debts to the State Department this month.

Read the full analysis and its impact here.

February 14, 2018 in Tax Compliance | Permalink | Comments (0)

Tuesday, February 13, 2018

Treasury Proposes Repeal of Nearly 300 Outdated Tax Regulations

The U.S. Department of the Treasury today proposed repealing 298 tax regulations that are unnecessary, duplicative or obsolete and force taxpayers to navigate needlessly complex or confusing rules. President Trump issued an Executive Order on April 21, 2017, directing Treasury to review tax regulations to ensure a simple, fair, efficient, and pro-growth tax system. Today’s actions are a direct result of that review.

“We continue our work to ensure that our tax regulatory system promotes economic growth,” said Secretary Steven T. Mnuchin. “These 298 regulations serve no useful purpose to taxpayers and we have proposed eliminating them.  I look forward to continuing to build on our efforts to make the regulatory system more efficient and effective.” 

The regulations proposed to be repealed fall into three categories:

  1. Regulations interpreting provisions of the Code that have been repealed;
  2. Regulations interpreting provisions that have been significantly revised and the existing regulations do not account for these revisions; and
  3. Regulations that are no longer applicable.

Click here to read the regulatory notice.

February 13, 2018 in Tax Compliance | Permalink | Comments (0)

Friday, January 19, 2018

Bassett Mirror Company Agrees to Pay $10.5 Million to Settle False Claims Act Allegations Relating to Evaded Customs Duties

Virginia-based home furnishings company, Bassett Mirror Company, has agreed to pay the United States $10.5 million to resolve allegations that it violated the False Claims Act by knowingly making false statements on customs declarations to avoid paying antidumping duties on wooden bedroom furniture imported from the People’s Republic of China (PRC), the Justice Department announced.          

The United States alleged that between January 2009 and February 2014, Bassett Mirror evaded antidumping duties owed on wooden bedroom furniture that the company imported from the PRC by knowingly misclassifying the furniture as non-bedroom furniture on its official import documents.  Antidumping duties protect against foreign companies “dumping” products on the U.S. market at prices below cost.  The Department of Commerce assesses, and the Department of Homeland Security’s Customs and Border Protection collects, these duties to protect U.S. businesses and level the playing field for domestic products.  Imports of PRC-made wooden bedroom furniture have been subject to antidumping duties since 2004.  At the time of the alleged conduct in this case, wooden bedroom furniture from the PRC was subject to a 216 percent antidumping duty; non-bedroom furniture was not subject to an antidumping duty.

“Those who import and sell foreign-made goods in the United States must comply with the laws meant to protect domestic companies and American workers from illegal foreign trade practices,” said Acting Assistant Attorney General Chad A. Readler for the Justice Department’s Civil Division.  “The Department of Justice will pursue those who seek an unfair advantage in U.S. markets by evading the duties owed on goods imported into this country.”

“This Office will not tolerate anyone who seeks to stack the deck against American workers and products,” said U.S. Attorney Bobby L. Christine for the Southern District of Georgia.  “We will continue to work with our law enforcement partners, as well as our colleagues in the Civil Division, to pursue those who believe that their own profit justifies evasion of federal antidumping duties.”

“CBP is appreciative of information received from the public regarding fraudulent trade activity.  This type of blatant disregard for trade laws and regulations severely impacts the US economy by giving these bad actors an unfair advantage over legitimate importers,” said Donald F. Yando Director of Field Operations for the U.S. Customs and Border Protection Atlanta Field Office. “CBP is committed to working with our partners both inside and outside the government to help bolster the US economy by putting an end to this type of illegal activity.”

The settlement with Bassett Mirror resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and share in a portion of the government’s recovery.  The civil lawsuit was filed in the Southern District of Georgia and is captioned United States ex rel. Wells v. Bassett Mirror Company, Inc. et al., Civil Action No. 4:13-CV-000165.  As part of today’s resolution, Ms. Wells will receive approximately $1.9 million.

January 19, 2018 in Tax Compliance | Permalink | Comments (0)